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South Africa’s Infrastructure Fund is here, minus corruption vows National Treasury

South Africa’s R100bn (about $5.8bn) Infrastructure Fund is here, but there will no repeat of the large-scale corruption witnessed in 2010, says National Treasury director-general Dondo Mogajane.

“We will ensure that [which] we had seen during the construction of the 2010 infrastructure roll-out does not happen. We’ve got lessons we’ve learnt from what we picked up when we rolled out the 2010 infrastructure,” says Mogajane. The National Treasury, the Development Bank of Southern Africa (DBSA) and the newly established Infrastructure South Africa have partnered to make the Infrastructure Fund a reality. This is two years after President Cyril Ramaphosa announced an Infrastructure Fund. Once fully up and running, the fund will be used as gap funding for infrastructure investments, according to the parties. The National Treasury, DBSA and Infrastructure South Africa have entered into a memorandum of agreement, outlining each entity’s roles and responsibilities. The support from the Infrastructure Fund will include blended co-funding, capital subsidies, as well as interest rate subsidies and government guarantees. The government has earmarked R100bn over 10 years, with the first R10bn provisioned in the February national budget. “The R10bn is there, we didn’t touch it,” says Mogajane. That is despite considerable pressures on the fiscus arising from the COVID-19 crisis, which necessitated a reprioritisation of government spending.

Public procurement and the riddle of corruption

In the build-up to the 2010 Soccer World Cup, South Africa experienced an infrastructure boom, aided by the construction of stadiums and associated facilities. However, that was marred by endemic corruption which resulted in major construction companies incurring massive fines for collusive pricing and tendering. In recent weeks, National Treasury tightened emergency procurement regulations to stem the occurrence of widespread corruption. The initial regulations were intended to speed up the procurement of personal protective equipment (PPE) and make the process less onerous. READ MORE South Africa VS Coronavirus: Public finances looking prickly But the PPE procurement process has been mired in controversy. President Ramaphosa’s spokesperson is currently on a leave of absence following revelations her husband might have allegedly irregularly benefited from a PPE tender. The National Treasury and DBSA have moved to dispel perceptions that the Infrastructure Fund will fall foul of governance.

Maximum vigilance

“… As custodians of public finance, we will ensure that we are like eagles and hawks on top of the funds,” assures the National Treasury director-general, pointing out that, “we’ve got procurement rules in place, and we will be strengthening them.” The Infrastructure Fund process should be transparent, fair and competitive, adds the National Treasury’s most senior official. “We are not going to accept – whether it’s the corruptor or the corruptee – … into this space,” insists Mogajane. The National Treasury will facilitate funding requirements through the budget process and finance 50% of the Infrastructure Fund’s running costs. But why the two-year delay? “Unfortunately, [there has been] … no proper pipeline of projects,” explains Mogajane. Now, however, there are 55 projects – and others with potential. READ MORE Social infrastructure investment, a development priority in Africa “I couldn’t agree more with Mr Mogajane on the corruption … [and] making sure our procurement is in no way compromised,” says Patrick Dlamini, the DBSA CEO. “We want this thing to work. We are not going to disappoint you on this one.”

Infrastructure pathway to greener future

Dlamini explains there is a lot of funding becoming available from international bodies, which will be able to come in and blend finance. Crucially, this funding will come on stream during the early stages in the form of risk capital. Dlamini envisages that brownfield projects, greenfield projects, sustainable development and green energy will form part of the infrastructure mix. “We will see all manner of projects talking to the sustainable development of this country,” says the DBSA CEO. A key consideration will be how projects will contribute to South Africa’s low carbon trajectory. “We are one of the signatories to the United Nations. How do we [then] drive the ambition of the Paris Accord,” says Dlamini. Some of the answers lie in sustainable infrastructure development. Kgosientso Ramokgopa, the Infrastructure South Africa CEO, said: “The fund is an instrument. There is a robust exercise in terms of prioritising and packaging projects.” By Xolisa Phillip, in Johannesburg
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$39b Nigerian infrastructure company gets green light

The Central Bank of Nigeria (CBN) has received approval to create an infrastructure development company that would finance the revamp of critical transport infrastructure throughout the country.

The company would leverage local and international funding, and would be co-owned by the CBN, African Finance Corp., and Nigerian Sovereign Wealth Investment Authority. It would be exclusively managed by an independent infrastructure fund manager. The company would initially inject $39 billion in Nigeria over five years. BY KALI PERSALL
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DHL’s Saloodo! partners AfricaPLC to grow intra-African and global trade

Saloodo! will be the first logistics partner to provide digital road freight solutions on the AfricaPLC e-trade marketplace

  • AfricaPLC assists to digitize African SMEs, so they can participate in and support the African Continental Free Trade Area (AfCFTA)
  • The partnership expects to expand across the continent by early 2021

Johannesburg, South Africa – Digital road freight platform Saloodo!, a subsidiary of DHL Global Forwarding, has signed an Memorandum of Understanding (MOU) to be the first logistics provider to offer digital road freight solutions on AfricaPLC, an innovative industrial eCommerce Marketplace and FinTech platform, managed by the Africa Investor (Ai). Ai is an institutional investment holding platform that vets and promotes infrastructure, private equity and technology investment opportunities in Africa.

The partnership will address some of the biggest obstacles facing businesses seeking to expand across Africa and global markets, such as access to trade opportunities, sourcing of credible partners, trade finance and reliable logistics solutions. Saloodo!, backed by DHL, the world’s leading logistics player, will inject greater transparency and efficiency by enabling shippers – from small enterprises and start-ups to large multinational groups – to find trusted and reliable freight carriers across Africa.

Tobias Maier, CEO of Saloodo! Middle East and Africa said, “Our partnership with AfricaPLC is an exciting opportunity for Saloodo! to showcase our intuitive digital platform that will offer shippers and transport providers a single, simple, reliable interface to optimise costs, routes, cargo and transit times. Road freight continues to form the backbone of Africa’s logistics industry and I’m convinced that our digital solution will further its progress as the economy recovers.”

According to the World Bank, intra-African trade is one of the best solutions Africa has to eradicating challenges such as poverty and hunger. Intra-African trade not only provides for solutions and opportunities for businesses to grow, but also expands the African economy through diversification and inclusion. Initiatives such as the African Continental Free Trade Area Agreement (AfCFTA) will speed up economic growth and digitalization can be the impetus to accelerate this development.

“AfricaPLC is committed to supporting the growth of any organisation, particularly SME’s, through the African Continental Free Trade Area (AfCFTA) and globalising African e-trade ecosystems,” said Hubert Danso, Chairman, AfricaPLC. “By partnering with Saloodo!, our SME, Corporate, Public Sector and Trade Finance customers can be assured that fulfilment is carried out by a reliable and compliant provider, who can provide full visibility and transparency throughout the shipping process.

This allows our partners to channel resources on further growing their business intra-Africa and to global markets and efficiently managing their budgets and supply chain networks.” In the current Covid-19 pandemic for example, AfricaPLC has been supporting its public and private sector partners to facilitate the trade and transport of critical Personal Protective Equipment (PPE) across the African continent.

“Since our entry into South Africa last year, Saloodo! has successfully expanded to the rest of the continent and is perfectly positioned to further push the envelope of digitalisation to improve the state of logistics services in Africa,” added Maier. “The demand for digital transformation will be driven by emerging markets globally and this crucial partnership with AfricaPLC will allow us to explore solutions that will help boost economic activity on the continent through logistics services and encourage intra-Africa trade.”

Media Contact: MSL GROUP Account Director Lydia Luvhengo TEL: +2787 255 1396 MOB: +2773 526 1163 Email: Lydia.luvhengo@mslgroup.com

DHL Asia Pacific & EEMEA Corporate Communications, Sustainability and Brand Jenny Yeo / Fiona Teo Tel: +65 6879 8332 / +65 6879 8333 E-mail: apeemeamediarelations@dhl.com

AfricaPLC Press contact Wendy Edwards Tel: +27 11 7832431 E-mail: wedwards@africainvestor.com

About Saloodo! Saloodo! combines the best of two worlds: The digital freight platform, founded by Deutsche Post DHL Group in 2016, combines the logistics expertise and infrastructure of a global player with the flexibility and digital skills of a start-up. Saloodo! simplifies the day to-day processes of shippers and hauliers with a powerful end-to-end, digital solution for commissioning and handling shipments. This maximizes the transparency and efficiency of the entire transport process.

By offering the free choice of a neutral online marketplace and the security and convenience of a digital freight forwarder, Saloodo! is the answer to the progressive digitization in the highly fragmented transport market.

DHL – The logistics company for the world

DHL is the leading global brand in the logistics industry. Our DHL divisions offer an unrivalled portfolio of logistics services ranging from national and international parcel delivery, e-commerce shipping and fulfilment solutions, international express, road, air and ocean transport to industrial supply chain management. With about 380,000 employees in more than 220 countries and territories worldwide, DHL connects people and businesses securely and reliably, enabling global sustainable trade flows. With specialized solutions for growth markets and industries including technology, life sciences and healthcare, engineering, manufacturing & energy, auto-mobility and retail, DHL is decisively positioned as “The logistics company for the world”.

DHL is part of Deutsche Post DHL Group. The Group generated revenues of more than 63 billion euros in 2019. With sustainable business practices and a commitment to society and the environment, the Group makes a positive contribution to the world. Deutsche Post DHL Group aims to achieve zero-emissions logistics by 2050.

About Africa PLC – Globalizing Africa eTrade AfricaPLC is an innovative, B2B and B2G multi-sector, industrial eCommerce Marketplace and FinTech platform, focused on improving intra-African trade flows, cross border payments, supply chain transparency, logistics and access to trade intelligence and global markets.

AfricaPLC provides, secure and easy to use transaction platforms and is continuously innovating blockchain and RegTech trade enabling solutions, to assist facilitate our clients and partners digitally originate, transact, track and settle B2B and B2G transactions across the African continent and worldwide.

AfricaPLC is committed to connecting the African Continental Free Trade Area (AfCFTA) with global markets, by simplifying cross-border trade and procurement transactions for SMEs, large businesses, financial institutions and African governments. www.africaplc.com

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Ai Supports African Infrastructure Investment Trusts Initiative

A defined solution to the infrastructure financing gap – Infrastructure Investment Trusts (IIT)

Africa investor (Ai) partners African Capital Market leaders and the Global Listed Infrastructure Organisation (GLIO) on Africa's first Infrastructure Investment Trusts (IIT) initiative - as recommended in the recent G20-OECD Infrastructure Working Group Report.

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China’s Infrastructure-Heavy Model for African Growth Is Failing

In Ethiopia and Kenya, the attractive illusion of the “China model” has had grave financial consequences.

The strategy of “infrastructure-led growth” (growth, not economic and social development) seems to be showing its limits in Africa, where China has largely been instrumental in promoting it.

This strategy is based on the Keynesian multiplier theory whereby any increase in aggregate demand would result in a more than proportional increase in GDP. In other words, any investment in infrastructure would induce growth, regardless of its true economic and social profitability. The implementation of this theory greatly explains why China has been able to maintain very high growth figures over the last 15 years. Whether or not infrastructure investment is redundant, whether it takes place in China or abroad, the result for China is the same. Thus, by financing African infrastructure investment, China is causing an increase in demand for the goods and services it produces and thus an increase in its own GDP. This is the virtue to systematically tying the granting of a loan with an almost exclusive sourcing of goods and services produced in China. It should be remembered that this tying practice is normally banned for OECD/DAC members (which do not include China) and that only France and the United Kingdom would actually comply with this rule.

This infrastructure-led strategy has been prescribed in Africa by the World Bank and supported since 2008 by its former chief economist, Lin Yifu (Justin Lin, who since the end of his mandate has become a very active lobbyist for Chinese companies in Africa through his own think tank). However, the least favored African countries — Ethiopia will serve as an example here — do not enjoy an economic environment as favorable as that of China. Admittedly, over the last 10 years (2000-2019), as a result of the Keynesian multiplier, the average annual growth rate of Ethiopian GDP has been around 6 percent. This remarkable growth was coupled with an equally striking increase in imports, largely to support infrastructure investment. However, over the same period, neither the growth of exports (17 percent growth in 2019), nor that of personal remittances, foreign exchange reserves, or even foreign investment can fill a growing financing gap. At the same time, the external debt service (almost half of which will be for China alone in 2019) is soaring in the country’s finances. Ethiopia was forced to devalue its currency, the birr by 15 percent in 2017.

Both the first Growth and Transformation Plan (2009/10-2014/15) and the second (2015/16-2019/20) were based on the idea that investment in infrastructure (in particular the Addis Ababa-Djibouti railway line and electrification) would attract foreign investors to special economic zones where production would be generated for export, which should have made the infrastructure profitable. However, apart from aberrant timing (a Chinese loan initially for 15 years, then rescheduled over 30 years, for railway infrastructure that needs 50 to 75 years to be amortized), this strategy has shown its limits, which are highlighted by the rather pathetic performance of the footwear sector, despite its promotion to the status of a herald of Ethiopian industrialization and Sino-Ethiopian cooperation.

Lin Yifu’s first trip when he was appointed chief economist of the World Bank was to Ethiopia the very day after his appointment in June 2008. In March 2011, again in his capacity as World Bank representative, he reportedly recommended to Ethiopian Prime Minister Meles Zenawi the setting up a special economic zone and making specific use of Chinese companies. Lin also suggested that Meles develop the footwear industry with the skins produced in abundance by Ethiopian cattle, sheep, goat and camelid farms, and he encouraged the prime minister to visit manufacturers in this sector in China. In August 2011, taking part in the opening ceremony of the Summer Universiade held that year in Shenzhen, Meles met Zhang Huarong, a shoe manufacturer, whom he invited to Ethiopia. The following month Zhang flew to Ethiopia for a week, where he found that the wages were only a tenth of those paid in China and that the skins available are of good quality. In November, the Huajian International Shoe City (Ethiopia) was born, with the first pair of Guess shoes coming off the lines the following May.

Today, for Huajian and the other shoemakers, hopes seem to have been partly dashed. Demand has increased, the quality of the hides has been affected, strikes have broken out, some of Huajian’s renowned customers have decided to change suppliers, and the railway line between Addis Ababa and the port of Djibouti — through which exports must pass — is barely operational because of a lack of electricity. In spite of these pitfalls, exports tripled since the arrival of Huajian, but in 2018 they accounted for just over 1 percent of total Ethiopian exports; their economic impact is therefore minimal and they cannot be relied on to amortize infrastructure investments.

Much more impressive, in contrast, is the simultaneous soaring of footwear imports, almost 90 percent of which are Chinese: four times the amount of exports in 2018! While Chinese shoe manufacturers have set up shop in Ethiopia, where they are having difficulty exporting their production, none of them seem to be thinking of manufacturing shoes for the local market. Neither did the Ethiopian government, which should have seen this as an opportunity to implement an import substitution strategy. This classic approach, once adopted by the small Asian dragons to develop, has one advantage: it limits investments in infrastructure, or at least develops them not in anticipation of possible demand, which is all the more uncertain because it is external, but after domestic demand has actually emerged. This brings us back to the question of the railway line.

The IMF, in a report on Ethiopia issued in early 2020, now acknowledges the limits of this “public investment-driven growth model.” Perhaps it would have been better to question the relevance of the choices from the outset. No doubt it would have been wise for the Chinese advisers and the Exim Bank of China to have initially checked the profitability of a railway project (or even its actual feasibility) before financing it. Yet the parties involved powerfully encouraged Ethiopia (and also Djibouti) to choose a solution that was certainly splendid – and a perfect showcase for Chinese technologies — but absurdly expensive for very poor countries in view of its very limited profitability. Ethiopia is now classified as a country at high risk of financial distress.

But then again, how could Lin Yifu, the World Bank, and the Exim Bank have conceived, supported, and financed such a railway project without considering that Ethiopia would eventually reconnect with neighboring states and thus be able to challenge the de facto monopoly that the port of Djibouti enjoys over Ethiopian exports? In March 2019, Ethiopia announced that it would build a new road to Berbera with the support of the Abu Dhabi Development Fund and DP World, which is developing the Berbera Port. However, as early as 2015, the African Development Bank was concerned about the consequences of this competition and construction for Djibouti’s future. In June 2019, Ethiopia also announced that it was building a railway line between Addis Ababa and Port Sudan with the support of the African Development Bank and the New Partnership for Africa’s Development (NEPAD). Also in 2019, it was reported that a new railway between Addis Ababa and the port of Massawa in Eritrea (as long as the railway line between Addis Ababa and Djibouti) was planned, the study of which is being financed by Italy. Finally, while Ethiopia and Djibouti have gone into financial distress over the Chinese railway line, Addis Ababa has secured an African Development Bank injection of $98 million for the development of the Ethiopia-Djibouti road corridor, through which 90 percent of Ethiopia’s imports and exports still pass today. In short, not only does Ethiopia produce neither enough electricity nor enough goods to power its magnificent but ruinous railway line, but it also plans to finance three routes to competing destinations at the expense of Djibouti’s ports and terminals. It is clear that neither Lin Yifu, the World Bank, nor the Exim Bank were able to effectively advise Ethiopia, as the initial project failed both to take into account the likely evolution of Ethiopia’s geopolitical situation and to accurately assess the country’s economic potential.

Although the details are different, the story of the construction of the railway line between Mombasa and Nairobi (entrusted to a Chinese company and financed by Exim Bank) is similar. When the Kenyan government came up with the idea of upgrading this line, building a brand new standard gauge railway was not considered an economically sound strategy. In August 2013, a cost-benefit analysis described four alternatives. The first was a plan to rehabilitate the existing metric gauge network; the second was to upgrade the existing network to a higher standard using the same gauge; the third considered upgrading the existing network to a standard gauge system on the same network; and the fourth proposed building a standard gauge railway on a new line (the option ultimately chosen by Kenya).

The comparative analysis of investment costs and expected benefits then concluded that a new standard gauge railway would require three times as much growth to be financially viable. Although a renovated metric gauge network would have been the most appropriate option in economic and financial terms, the government justified its final decision by saying it was confident that GDP growth would be high.

Debt distressed African countries certainly bear responsibility for their own debt, but China and the World Bank, which have lulled and fed their illusions with the success of the “Chinese model” without putting its implications and transferability into perspective, also bear a very large part of it, if not perhaps the main part. The strategy of infrastructure-led and Chinese-financed growth has clearly shown its limits, as it has too often failed to assess the relevance and profitability of the projects it promoted.

This article is presented by Diplomat Risk IntelligenceThe Diplomat’s consulting and analysis division. Learn more here
By Thierry Pairault
July 30, 2020
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Private Creditors Form Group to Negotiate Africa Debt Relief

By Alonso Soto May 15, 2020, 2:34 PM GMT+2 Updated on May 15, 2020, 6:16 PM GMT+2 Private creditors representing more than $9 trillion of assets under management formed a group to negotiate debt relief for African nations, warning of the risks of a blanket approach to the process. The so-called Africa Private Creditor Working Group will assist African countries and other debt providers to cushion the economic impact of the coronavirus pandemic on the continent, it said in a statement Friday. The group represents 25 asset managers and institutions that financed countries and corporates via Eurobond, syndicated loans and trade finance. African countries are asking official and private creditors to temporarily suspend $44 billion in debt payments this year in order to channel scarce resources to contain the spread of the coronavirus. Some investors are concerned that countries could unilaterally halt payments, locking them out of debt markets and hurting creditors as well, said Lars Bane, director of Farallon Capital Europe LLP and a member of the group. “There is a bit of concern in terms of a growing narrative pushing for this blanket standstill and even more concerning, debt forgiveness in Africa,” Bane said in a phone interview. “There is genuine consensus that you do have to have a case-by-case approach to have the best outcome for both the borrowers and lenders.” The group’s members include Aberdeen Asset Management Plc, Amia Capital LLP, Ninety One U.K. Ltd., Pharo Management LLC and Greylock Capital Management LLC. An understanding with investors that clarifies debtors’ positions on future payments could reduce sovereign-bond yields and help governments return to international capital markets soon. “Until this issue is clarified, none or very few African issuers will have market access in the near future,” Bane said.

Specter of Default

The pandemic has raised the specter of a slew of debt defaults in developing countries that had to shut down their economies to try and stop the spread of the virus. Demand for the raw materials many of the nations produce has plummeted. For debt-relief advocacy group Jubilee Debt Campaign, private creditors will have to take losses as poor countries ramp up spending on health and social protection measures. “Private creditors lent at high interest rates to poor countries because they claimed loans were high-risk,” said Tim Jones, head of policy at the campaign. “The risk has come home to roost and lenders need to accept they cannot make large profits from these loans.” www.bloomberg.com
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